Supermarkets rejig business model for last-mile delivery

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December 30, 2020 10:15 AM

With the lockdowns progressively easing, most supermarket chains have seen a recovery in footfalls since October

Experts opine that it will be easy for supermarkets to adopt digital channels since their back-ends are already digitisedExperts opine that it will be easy for supermarkets to adopt digital channels since their back-ends are already digitised

The disruption due to the lockdown forced supermarkets to rethink their business models. They reached out to consumers via telephone calls and scaled up deliveries. “It was important to get close to the customer since they could not shop at our stores,” Lavdeep Walia, chief marketing officer, More Retail, observed. The company claims to have grown its deliveries tenfold in the past few months by increasing deliveries, phone calls and using mobile vans.

Spencer’s Retail tied up with Uber, Rapido and introduced a chatbot ordering platform for customers.

Experts opine that it will be easy for supermarkets to adopt digital channels since their back-ends are already digitised. The ‘hyper-local delivery’ model will also give them an edge.

“Unlike e-grocery players, most supermarkets can deliver out of their stores and do not need to set up dark stores, etc,” said Harminder Sahni, founder and managing director, Wazir Advisors. Sahni, however, added that these companies need to overcome the internal inertia to adopt the new channel.

Nidhi Sinha, content head, Mintel India, added that these companies will also have to battle the consumer preference of buying staples and daily need products from their neighbourhood kirana stores.

With the lockdowns progressively easing, most supermarket chains have seen a recovery in footfalls since October. However, business is yet to reach pre-Covid levels, especially, for non-essential categories.

“Categories like luggage and apparel, with still limited out of home mobility and fewer travel plans, will take a few months to reach the pre-covid numbers,” Devendra Chawla, MD, Spencer’s Retail and Nature’s Basket said. Meanwhile, e-commerce is going to be a focus of the supermarkets in 2021, too, as they go omnichannel. “We will keep going stronger on our ‘out of store’ initiatives,” Chawla added.

Modern trade hit a rough patch in 2020 with shopping disrupted by the lockdown imposed in the wake of the pandemic. While e-commerce and general trade flourished with consumers quick to adapt, modern trade struggled; the stores in malls virtually out of reach and those in markets open only for a few hours each day. Nielsen estimated modern trade’s contribution to FMCG sales fell from 10.4% in Q12020 to 8.2% in Q32020. In contrast, general trade and e-commerce grew their shares by 1.6% and 0.5%, respectively.

With revenues under pressure earnings of supermarket chains were badly hit. Avenue Supermarts, which owns and operates D-Mart, reported a 38% y-o-y fall in net profit to `199 crore in Q2. Future Retail, which runs BigBazaar, Foodhall, Easyday, and Nilgiris reported a net loss of `692 crore in Q2, on the back of a 74% drop in sales. Most stores, nonetheless, reported an increase in basket size as consumers bought more at every visit. Shoppers also picked up more value packs.

While FMCG brands gave precedence to general trade and e-commerce this year due to changing consumer behaviour, they are optimistic about modern trade. These companies, such as Hamdard Laboratories and Cargill India, typically derived 12-15% of their business from modern trade before March.“We target urban families for our products and hence modern trade becomes an important channel for us to reach them,” said Piyush Patnaik, MD, Cargill’s oil business in India. Patnaik opines that as supermarkets evolve, consumers will return to the channel.

Read Also: Year Ender 2020: Subscription based OTT platforms deliver a knockout; register a spike in user base

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